Supply Chain Transmission and Supply Gap Calculation
The impact of the Middle East conflict on the aluminum market has shifted from sentiment to substantial capacity damage. Analysis by Natixis shows that the extent of damage to facilities of EGA and Aluminium Bahrain exceeds expectations, making it difficult to restore the global aluminum market balance sheet before 2027. Since aluminum smelting is a continuous process, shutdowns due to power outages or physical damage often involve high restart costs and several months of recovery time. Currently, Aluminium Bahrain has shut down almost one-fifth of its capacity, and if damage assessments worsen, the global aluminum market may face its most severe shortfall pressure since the early 21st century.
Rising Energy Costs and Regional Premiums
As aluminum production is an energy-intensive industry, the Middle East conflict not only directly destroys capacity but also raises regional natural gas and electricity costs, thereby increasing the pricing center of primary aluminum from the cost side. With export channels in the Persian Gulf blocked, existing trade flows are being forcibly reorganized. Japanese and Southeast Asian buyers are accelerating their search for alternative supplies, leading to a significant increase in export orders for China as the world's largest producer. Such cross-regional premium fluctuations are gradually transmitting to the end automotive, packaging, and aerospace industry chains.
Global Inventory and Alternative Strategies
After two years of destocking cycles, global LME aluminum inventory is now at a relatively low point in history. Without sufficient inventory cushioning, the spillover effects of the Middle East conflict are magnified. Britannia Global Markets warns that if the conflict escalates, affecting facilities in Saudi Arabia or Qatar, aluminum prices may enter an extreme volatility range. In the short term, downstream processing companies may be forced to use recycled aluminum or seek secondary supply sources, but amid a primary aluminum capacity gap of millions of tons, the hedging effect of these measures is limited.
